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Wednesday, May 31, 2023

What the Fed and Madonna have in common

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Economists at the Fed work hard to maintain the institution’s reputation as a solid economic pillar – unaffected by politics or the whims of the day, know-it-all and important most effective. This image obsession serves an important purpose: The credibility of the central bank depends on Americans believing it… trustworthy.

That’s not a secret. In the family Minutes of the June meetingOfficials noted that strong credibility and communication have been “helpful in changing market expectations for future policy and have contributed to a notable tightening of financial conditions that could help reduce inflationary pressures by curbing aggregate demand.”
If Fed Chairman Jerome Powell says the Fed will reduce historically high inflation rates, Americans believe him and change their behavior to reflect that. It’s a self-fulfilling prophecy, the Fed’s version of Secret.
But perception doesn’t always match reality, and economists at the Federal Reserve are just as susceptible to economic swings as you and I are. There is no official rule book to follow; they conduct their monetary policy through trial-and-error, and there was an error.

The Fed, like Madonna, is constantly evolving. This organization aims to create an aura of stability that doesn’t come as a surprise to us.

Vincent Reinhart, chief economist at Dreyfus-Mellon, said the Fed’s goals are relatively vague and can be interpreted. The definitions of the three goals – maximum employment, stable prices and moderate interest rates, he said – are “unidentified flying objects”. Right now, obviously employment is powerful and that expensive but as interest rates continue to rise, there can be more ambiguity and room for off-topic monetary recommendations.

The Fed as we know it gradually moves interest rates up and down at pre-designated meetings. They explain their decision-making to as much communication as possible and produce their economic projections to let Americans know what’s going to happen in the future.

That was not the case in 1980, when inflation spiked to 14.6%, the highest on record.

Under the leadership of Paul Volcker, Fed officials sharply raised and cut the benchmark interest rate at unscheduled meetings without corresponding policy statements. The funds rate on offer didn’t have the tight target range it has today – it regularly spans 5 percentage points. It wasn’t until Alan Greenspan came to power in the 1990s that the Fed began to adjust interest rates at FOMC meetings, and it wasn’t until the 2000s that the central bank began tightening and easing rates accordingly. cycle.

Major changes also occurred in 2008 under the leadership of Ben Bernanke. That’s when the Fed responded to the Great Recession by enacting a policy that was previously unbelievable: Interest rates fell 100 basis points to near zero. They remained there until 2015.

Christopher Leonard, author of The Lords of Easy Money, an upcoming book on the history of the Fed, said the actions were “experimental and unprecedented”. “They pushed the boundaries.”

Brian Rehling, head of Global Fixed Income Strategy at Wells Fargo Investment Institute, said the Fed today has undergone a “huge shift towards transparency and trying to communicate clear policy to does not surprise the market”. They are more transparent in their goals and policy setting. Additionally, Powell’s impact on the annals of monetary policy remains undetermined.

Mr. Reinhart said Powell appeared to be loosely adhering to the monetary policy set forth by Volcker during the high inflation days of the 1980s, but each chair had to play to its own strengths. He said: “Greenspan can get into the data. Volcker has personal authority on his understanding of the market and the bank. Powell seems to be interested in speaking out simply; he has shifted the focus. The Fed’s focus and attention is on all Americans rather than just economists and investors, he added.

But the central bank will face a new set of challenges as “the economy doesn’t feel as good and inflation has yet to return to its target level,” Rehling said. Powell will have to decide whether the Fed will continue on its hawkish rate hike path in the face of political pressure and public opinion about the state of the economy as a whole. Maybe that’s when the Fed will enter the ‘Material Girl’ era.

The FOMC is meeting in Washington next week and many are expected to announce another rate hike to 75 basis points.

Happy 13th birthday with a minimum salary of $7.25

July 24 marks 13 years since the last time the US federal minimum wage was raised, to $7.25 an hour. It is also the longest period without a raise since the federal minimum wage was enacted in 1938.

Even as historically high inflation rates eroded the strength of US wages and headlines focused on a tightening labor market, the rate is $7.25, or $15,080. a year for a full-time job, still intact.

Holly Sklar, Executive Director of Business for A Fair Minimum Wage, said: “Every day without a raise is another day the minimum wage is below the cost of living.

Annual income of $15,080, about four times less than the average US household budget of $61,334 in 2020, according to the latest data available from Bureau of Labor Economy. Inflation has increased by nearly 15% in the past two years.
The federal minimum wage is now at its lowest value since 1956, when the minimum wage was 75 cents New analysis from the Economic Policy Institute.

According to the EPI, a minimum wage worker is now taking home 27.4% less than in July 2009 and 40.2% less than in February 1968 when adjusted for inflation.

About 30 states and Washington DC have higher minimum wages than the federal standard. Five states have not yet adopted a state minimum wage: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee. Georgia and Wyoming have a minimum wage of less than $7.25 an hour. In all seven of these states, the federal minimum wage of $7.25 an hour applies.


Monday: Chicago Fed National Activity Index for June

Tuesday: Microsoft, Alphabet, Coca-Cola and McDonald’s report earnings

Wednesday: Fed rate decision and FOMC press conference; Meta and Boeing report earnings

Thursday: Apple, Amazon and Pfizer report earnings

Friday: Exxon Mobile and Chevron report earnings

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I am passionate about journalism and using new technology to spread news. I am also interested in politics and economics, and I am always looking for ways to make a difference in the world. I am the CEO of Janaseva News, and I am 24 years old.

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